Budget deficit

Question: is it not a prerequisite of the pre-Budget report to give an indication of fiscal changes to be enacted in forthcoming Budgets? Answer: apparently not when it comes to informing the property, housing and development sectors about proposed changes to tax incentives for brownfield development.

Arguably, the 2007 pre-Budget report will be remembered as much for the “policy plagiarism” controversy as it will be for the policies themselves. However, there were no new policies announced or clear direction given on the future role of targeted brownfield incentives to comment on, let alone to shout “copy-cat” at.

This was particularly disappointing in light of the consultation announced in the 2007 Budget. The stated timetable had been for proposals to be enacted not before 2008, but for a response with more definite proposals to be given in the 2007 pre-Budget report.

No definite proposals appeared, nor did an outline timeline for reform, which had also been promised. A solitary reference was made to the government’s commitment to take forward wider action on disused land. Effectively, though, it only served to confirm the existing position: further reforms are being considered to land remediation relief and the landfill tax exemption for waste from contaminated land, and there remains an ambition to target incentives at long-term derelict sites. So it is not surprising that the sector remains a little deflated and a lot nervous about the possible forthcoming changes.

The government did take the opportunity in the pre-Budget report to further emphasise its commitment to meeting the escalating housing demand. Targets were upped from an annual forecast of 185,000 new homes to 240,000, with much of this growth anticipated to come from the development of brownfield sites.

Given this ambition, combined with the lack of clarity on the incentives designed to these goals, it is worth reiterating some of the issues that – when they come – will undoubtedly affect developers of brownfield sites.

Landfill tax exemption is likely to be withdrawn, leading to significant increases in the cost of remediating sites where dig and dump is the recommended strategy. With landfill tax rates set to hit £48/tonne (nearly (£100/m3) by 2010, the potential viability of these sites could be severely threatened.

No definite proposals appeared, nor did an outline timeline for reform, which had also been promised

It is expected that some “grandfathering” arrangements will be introduced to allow for phased withdrawal, although developers already committed to schemes that depend on gaining an exemption certificate are well advised to make an application as soon as is practicable.

It is far from being guaranteed that all awarded exemption certificates will be honoured, but it is the best means of protecting an investment at this time, in the absence of any further information.

An additional land remediation relief entitlement condition linked to planning may be introduced. This was presented on the grounds of concern that some sites were being remediated without any new development taking place. However, it was suspected that the main driver was to provide a link to the timing

of the planning gain supplement, particularly when there is little evidence to suggest that there is a problem to address in the first place. Whether the withdrawal of the supplement will remove the need for this additional condition remains to be seen. If the recently released summary of consultation responses is any indicator of current thinking, the overlooking of these arguments would suggest that everyone should prepare for the introduction of a planning condition in some shape or form in the financial new year.

Proposals to accelerate the land remediation relief benefit for developers from the year in which land is sold to the year end of expenditure look unlikely to be realised on the basis that it would run contrary to the accounting treatment. Whether there is an appetite to overcome this hurdle, again, remains to be seen.

There is potential for introduction of a new tax relief based on the existing land remediation relief legislation for expenditure incurred on bringing derelict sites back into use. Sites registered on the national land use database are likely to qualify, as are sites which have been substantially derelict since March 1998. Full entitlement conditions are not yet determined, but qualifying sites are likely to enjoy 150% tax relief across a broader range of expenditure beyond remediation costs, such as geotechnical solutions, mineshaft stabilisation, flood risk mitigation measures and possibly some infrastructure costs.

However, research has shown that awareness of the national land use database is minimal. This could impede the uptake of the enhanced relief, as it did for land remediation relief in the early years and possibly jeopardise the effectiveness of the incentive.